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Chapter 2: Q3ISTQ (page 75)

Question: Companies that use IFRS:

(a) must report all their assets on the statement of financial position (balance sheet) at fair value.

(b) may report property, plant, and equipment and natural resources at fair value.

(c) may refer to a concept statement on estimating fair values when market data are not available.

(d) may only use historical cost as the measurement basis in financial reporting.

Short Answer

Expert verified

Answer

The correct option is(b) may report property, plant and equipment, and natural resources at fair value.

Step by step solution

01

Definition of Conceptual Framework

Conceptual frameworks can be defined as the fundamentals and the principles that must be followed to achieve the targeted objective of the financial reporting.

02

Explanation for correct options

The business entity reporting financial information under IFRS is allowed to report the PPR and natural resources at their fair market value under IFRS 13. IFRS 13 provides all the measurement and disclosure requirements of the PPE and natural resources at fair market value.

03

Explanation for incorrect options

  1. Option (a) is incorrect because all of the assets are not reported on their fair value. Some of the assets, such as receivables and inventory, are reported at their net realizable value.
  2. Option (c) is incorrect because the fair value cannot be estimated when the market data is unavailable.
  3. Option (d) is incorrect because the business entity using IFRS can use fair value as a measurement basis in financial reporting.

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Most popular questions from this chapter

Briefly describe the fair value hierarchy.

Wayne Cooper has some questions regarding the theoretical framework in which GAAP is set. He knows that the FASB and other predecessor organizations have attempted to develop a conceptual framework for accounting theory formulation. Yet, Wayne’s supervisors have indicated that these theoretical frameworks have little value in the practical sense (i.e., in the real world). Wayne did notice that accounting rules seem to be established after the fact rather than before. He thought this indicated a lack of theory structure but never really questioned the process at school because he was too busy doing the homework. Wayne feels that some of his anxiety about accounting theory and accounting semantics could be alleviated by identifying the basic concepts and definitions accepted by the profession and considering them in light of his current work. By doing this, he hopes to develop an appropriate connection between theory and practice.Instructions

(a) Help Wayne recognize the purpose of and benefit of a conceptual framework.

(b) Identify any Statements of Financial Accounting Concepts issued by the FASB that may be helpful to Wayne in developing his theoretical background.

BE2-11 (L06) Vande Velde Company made three investments during 2017.

(1) It purchased 1,000 shares of Sastre Company, a start-up company. Vande Velde made the investment based on valuation estimates from an internally developed model.

(2) It purchased 2,000 shares of GE stock, which trades on the NYSE.

(3) It invested $10,000 in local development authority bonds. Although these bonds do not trade on an active market, their value closely tracks movements in U.S. Treasury bonds.

Where will Vande Velde report these investments in the fair value hierarchy?

Financial Reporting CaseIFRS2-5 As discussed in Chapter 1, the International Accounting Standards Board(IASB) develops accounting standards for many international companies. The IASB also has developed a conceptual framework to help guide the setting of accounting standards. While the FASB and IASB have issued converged concepts statements on the objective and qualitative characteristics, other parts of their frameworks differ.

Instructions

Briefly discuss the similarities and differences between FASB and IASB conceptual frameworks as related to elements and their definitions.

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